home insurance rate change

Why Your Homeowners Insurance Rates Change


Your homeowners insurance policy protects you if your home or certain assets are damaged or destroyed during a covered event. On top of that, most offer some level of liability protection in the event that someone gets hurt on your property. Mortgage lenders generally require homeowners insurance, but your premiums aren’t set in stone. Instead, they can fluctuate for a variety of reasons.

The average premium went up by 3.1 percent in 2018, according to the most recent data from the National Association of Insurance Commissioners (NAIC). Understanding why homeowners insurance rates change can help you take steps to reduce your out-of-pocket costs.

How are homeowners insurance rates determined?

Homeowners insurance tends to get the most attention during the homebuying process because it’s usually required when applying for a mortgage. A number of factors are used to calculate your initial rate. The age of your home often plays a role, along with your level of coverage, deductible, and prior insurance claims. With that said, the NAIC reports that the average premium in 2017 for the most common type of home insurance was $1,211. It’s worth noting, however, that rates can vary significantly from state to state.

Reasons your home insurance rate can increase

Rates are also determined by factors that suggest you may be more likely to file a claim in the future. That casts a very wide net and can include all sorts of things. Safety hazards are an obvious concern that could translate to more risk. If you’ve added a trampoline or pool to your property, for example, your insurer might bump up the cost of your policy. Below are additional reasons your home insurance rates can increase:

    • You have a history of filing claims. Similar to car insurance, your home insurance rates might go up if you’ve filed multiple claims in the past. Simply put, your insurer may view your policy as more costly to insure. The same can apply to those who live in an area where homeowners generally file more claims. This can include areas with higher rates of burglary or adverse weather events.
    • Construction costs go up. Construction prices have made headlines during the Covid-19 pandemic. The crisis has caused a price hike on lumber, plywood and other essential building materials. As a result, the cost to rebuild homes has increased. The pandemic aside, regular inflation can also increase construction prices over time. Insurers may pass these costs onto homeowners by dialing up their premiums.
    • Your home needs some work. Insurers are concerned with how likely you are to file a future claim. If your home has structural issues that need attention, you could see a price increase. Problems related to the roof or foundation are biggies that can be diagnosed during an external review of your property.
    • Your credit score decreased. In some states, your credit-based insurance score can influence your homeowners insurance premium. This metric is based on information on your credit report, and some insurers use it to predict risk. If your credit score has dropped, your insurer might increase your rate.  
  • There’s a gap in your coverage. Letting your insurance lapse could cost you in the long run. If you fail to renew your policy and there’s an interruption in your coverage, your insurer might increase your premiums to offset perceived risk. 

 Tips for saving money on homeowners insurance

Experiencing a rate increase can be disheartening, but it doesn’t have to be permanent. You may be able to find other workarounds to reduce your premiums. Here are a few potential ways to save money on your homeowners insurance:

Look for discounts

Many insurers offer additional discounts to qualifying homeowners. If you’re retired, for example, your insurance company may see you as less likely to be burglarized, according to the Insurance Information Institute. Make a quick phone call to see if any discounts are on the table.

Make safety or security upgrades 

Improving your home’s safety features can pay off in the form of a lower insurance premium. The Insurance Information Institute reports that installing smoke detectors, dead-bolt locks or a burglar alarm usually reduces rates by at least 5 percent. More sophisticated security systems could snag you a discount of up to 15 to 20 percent. If you have young children, installing a pool safety gate could be another worthwhile option.

Boost your credit score 

As we mentioned earlier, a lower credit score could adversely affect your home insurance rate. The opposite may also be true. Depending on where you live, improving your insurance-based credit score could unlock lower rates. Paying your bills on time, keeping your credit card balances low, and maintaining a healthy credit history can all move the needle in the right direction.

Increase your deductible 

Your deductible is the amount you pay out of pocket before your homeowners insurance kicks in and covers the rest. Deductibles generally reset with every claim, so having a lower deductible comes in handy if you need to file one. However, opting for a higher deductible usually reduces your premium. Just be sure you have your deductible amount on hand in your savings account should disaster strike.

Switch your insurer

Shopping around with other home insurance companies is another potential way to save. You can also consider bundling your home coverage with your auto insurer to reduce your premiums across the board.

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